Many people like the idea of sustainable or impact investing, but they have a common misconception that performance can suffer. This notion has been repeatedly debunked. This notion has been repeatedly debunked.
A 2015 analysis1 of over 2,000 studies since the 1970s—the most comprehensive review of academic research on this topic—found that the majority of studies show positive findings between environmental, social and governance (ESG) factors and corporate financial performance (CFP).
A 2012 RBC Asset Management report2 reviewed four bodies of research on sustainable investing and concluded that socially responsible investing has not resulted in lower investment returns.
You don’t have to rely on studies, however. You can also look at real world results of the MSCI KLD 400 Social index, which includes stocks with high environmental, social and governance ratings, versus a conventional stock index like the S&P 500. Since 1990, when the KLD started, it has performed slightly better than the S&P 500.
MSCI KLD index performed slightly better than the S&P 500
This chart illustrates the performance of a hypothetical $10,000 investment made in the MSCI KLD 400 index versus the S&P 500 from 6/30/90-6/30/17. The chart assumes reinvestment of dividends and capital gains, but does not reflect the effect of any applicable sales charge or redemption fees. This chart does not imply future performance. It is not possible to invest directly in an index. Past performance does not guarantee future results. The FundX Sustainable Impact Fund has a limited operating history. The index does not represent fund performance and fund performance can be found here.
Sustainable investing has evolved. Have you kept up?
Given all these studies and the actual track record of sustainable investing indexes like the KLD, why do people continue to believe that sustainable investing can hurt their returns?
One reason is that investors don’t realize how much sustainable investing has changed. They still think that sustainable investing either divests from certain industries, which could limit their opportunity to make money, or it only invests in clean energy, which could add volatility. But sustainable investing is no longer limited to divestment or clean energy.
Today, sustainable strategies are more comprehensive and inclusive: they don’t just exclude companies; they also seek to include companies that have good environmental, social and governance (ESG) characteristics. Rather than divesting from companies that don’t make the cut on an ESG level, some asset managers will invest in these companies with the goal of improving them. These managers use their power as shareholders to engage with a company’s management team in an attempt to help the company become a better corporate citizen and a better long-term investment. This approach has had a number of successes.
Sustainability is no longer a niche investment; it is now mainstream. Some of the largest and most successful companies are working to address the world’s environmental, social and governance (ESG) challenges. This year, 82% of the companies in the S&P 500 will publish sustainability reports compared to just 20% in 2011. That’s a huge improvement in just six years. Mutual fund managers that don’t market themselves as sustainable or socially responsible are also integrating ESG into their stock selection.
More companies and an increasing number of investors are recognizing the benefits of sustainable investing, and mutual funds like our FundX Sustainable Impact Fund (SRIFX) can make it easy for investors to try to build wealth and a better world.
Jump into Sustainble Investing
SRIFX seeks to make a positive impact in four key ways:
1. A time-tested investment strategy
SRIFX uses our Upgrading approach to invest in funds with strong recent returns. Funds that have done well recently may continue to do well.
2. Many investment opportunities
We can invest in self-identified ‘sustainable’ or ‘socially responsible’ funds as well as funds that have strong ESG ratings.
3. Effective Environmental, Social and Governance (ESG) integration
We use ESG ratings to help determine which funds to own now and how much to invest in each fund. Many studies have found a positive link between ESG factors and good performance.
4. An emphasis on impact investing
We invest more in funds that engage with companies to help them move forward, provided that these funds also have strong recent returns.
How to Invest
You can invest in SRIFX at major brokers like Charles Schwab or Fidelity, often for no transaction fee. You can also invest directly with our shareholder services for as little as $1,000. Call 1-866-455-3863 to get started.
While the fund may be available for no-transaction-fee at certain brokers, other fees and expenses may apply. Past performance does not guarantee future results.
1 Gunnar Friede, Timo Busch & Alexander Bassen, “ESG and financial performance: aggregated evidence from more than 2000 empirical studies”, Journal of Sustainable Finance & Investment, 2015.
2 RBC Global Asset Management, “Does Socially Responsible Investing Hurt Returns?”, 2012.
Publication Date: Upgrader Quarterly: Summer 2017